Business (and Law) Must Step Up--Now

The U.S. economy has been in an uninterrupted expansion for a decade.  Unemployment is at a 50 year low.  The stock market is at record levels.  Inflation is tame.  Gas prices are subdued. 

Yet American capitalism is under assault like never before.  The entire Democratic slate is promising bigger, more expensive, more intrusive government that hands out more stuff and promises more restrictions on our lifestyles (except abortion, of course).  From “Medicare for all” to the “Green New Deal” to free college and/or student loan forgiveness to a “wealth tax” and raising taxes on the “wealthy,” the Democratic platform, if implemented would mean the end of the innovative, flexible, growth oriented American capitalist model as we know it, to be replaced by something between a nanny state and out-and-out Communism.  Thirty years after the fall of the Berlin Wall, Communism seams to have sprouted back up again, led by Elizabeth Warren, Bernie Sanders and Alexandra Ocasio-Cortez, despite an economy in which people are doing pretty well.  Most troubling, surveys show that young people have a positive view of socialism.

There are many causes for this, I believe.  The echoes of the financial collapse of ’07-’08.  Our education system and media outlets are staffed disproportionately by left leaning people.  

But business leaders and leaders in the legal profession themselves are failing us with their behavior.  At a time when we are having to re-make the case for capitalism, it seems that every day, the press is full of stories of why business cannot be trusted to function in a lightly regulated environment.

As I wrote a couple of weeks ago, We Work is the poster child for why resentment toward capitalism has grown.  Ordinarily, Americans don’t care if market trend setters and disrupters get rich.  It’s the whole risk/reward formula which underpins capitalism.  But when the business fails spectacularly, and the owner still walks away with $1.7 billion (that’s billion with a “B”), there is something fundamentally flawed with the system.  The American capitalist system encourages people to try…and fail… without ruining.  But when the owner of a failed business gets rich while thousands get laid off, that’s when resentment really breeds.  Even uber-capitalist Cliff Asness (head of the hedge fund AQR Capital Management) noted that there was considerable overlap between what the Tea Party people were complaining about and what the Occupy Wall Street people are unhappy about.  A system that permits someone like Adam Neumann to get incredibly wealthy on a scheme that dissipated, rather than created, value has to be questioned.

Likewise, the airline industry is now under scrutiny and giving the mantra “profits before people” some credence.   Boeing’s debacle with the  737 Max  and Southwest’s  difficulty with the FAA over used aircraft it has acquired (Southwest cannot show the FAA that proper maintenance had been done on the aircraft acquired) raise the issue of “regulatory capture,” that the government agency charged with oversight has too cozy a relationship with those in the industry.  The upshot is that the industry players have at least given the appearance that they may be willing to cut corners and put profit ahead of safety---- directly feeding the liberal narrative.

Last week, Under Armour revealed that it was under S.E.C. investigation for pulling sales forward to pump up current quarter earnings and browbeating retailers into taking product earlier than they’d like.  Google announced that it was entering into a deal with Ascension Health under which Google would obtain patient identifiable data (exploiting a HIPAA loophole).

What was almost amusing about these instances was the public statement issued by these companies.  Southwest asserted that it was a “paperwork issue not a safety issue.”  Right.  Under Armour asserted that it was “common industry practice.”  The excuse that everybody does it usually gets worn out by the teen years.  And Google’s assertion that it was going to use the patient data to improve health care is almost laughable.  We have learned that we can’t trust the F.B.I. not to leak data.  Will you trust Google?

In the law, Gordon Caplan, co-head of Willkie Farr, a prestigious law firm, will do time in prison for his role in the college admissions scandal.   Lawyers have a special role as officers of the court.  Already, the perception is that children of wealthier professionals have a leg up in college admissions.  But when the co-head of a large law firm is caught openly bribing school officials to get a child admitted, it really feeds the narrative that the fix is in. 

These are but three egregious examples that illustrate some of the worst behavior, and they confirm the fears of average people that the deck is stacked.  Adam Neumann is laughing all the way to the bank while his company goes down in flames and people lose their jobs.  Boeing and Southwest raise suspicions that regulators are in the hip pockets of business.  That leaders in the legal profession are caught up in the college admissions scandal confirms fears that the privilege has no boundaries.

There is no guaranty that capitalism in the U.S. will survive.  Its image was sullied by the Great Recession and we are one election cycle from AOC, Bernie and Warren taking a wrecking ball to a system that has enriched us all over the past 200 years.  If it is to do so, it needs better spokespeople and a better P.R. push.  And most importantly, we need its leaders to exhibit better behavior.  Otherwise, our future may start looking more like Venezuela’s.